Global Policy Forum

by David Teather

A wave of deal-making that could reshape the US media industry is expected after a ruling in Washington ordered a review of the curbs on broadcast ownership.

A federal appeals court lifted the cross-media rule that prevents cable companies from owning TV stations in the same local market, providing the likes of AOL Time Warner and Comcast with routes for expansion. The court also told regulators to reconsider the existing limit that prevents a single company from reaching more than 35% of the national television market in the US. Lifting the rule would allow the big broadcasting networks owned by the likes of Rupert Murdoch's News Corporation or Viacom, both at the ceiling, to continue buying stations.

Analysts scrambling to work out potential combinations among the media groups in the US cited General Electric's NBC as a possible target for either AOL Time Warner or Comcast. Removing the restriction would equally allow News Corp, Viacom and Walt Disney, all owners of TV stations, into the US cable industry.

Judge Douglas Ginsburg said a decision by the Federal Communications Commission to retain the 35% cap in a review in 1998 was "arbitrary and capricious and contrary to law." FCC chairman Michael Powell has been an outspoken critic of the restrictions and he is expected to use the ruling to remove the cap. The 35% rule refers to the number of households a single company can reach with free-to-air TV stations. In most cases, the networks, like ABC or CBS, pay local stations to distribute their programming. But the stations are the most profitable part of the chain be cause they retain most of the advertising revenues.

While News Corp's Fox Network is losing money, the company's 33 TV stations generated $259m in earnings on revenues of $526m, a margin of almost 50%. News Corp breached the cap when it bought ten stations owned by Chris-Craft Industries in July, lifting its reach to 39% of households. Viacom also broke the limit when it merged with CBS in 2000. Both had received temporary waivers pending the appeals court ruling. The TV station market is extremely fragmented in the US and presents the big players with a large number of second tier players as potential takeover targets. Gannett, the US media group that owns the Newsquest regional newspaper business in Britain, could also pursue acquisitions aggressively.

A spokesman for News Corp welcomed the ruling. "We have long believed that the national broadcasting ownership rules were outdated and no longer served the public interest." News Corp has operations in 16 of the top 20 markets in the US and analysts suggested it would continue to focus on urban areas - a company can own more than one station in a city.

AOL Time Warner triggered the rule changes when it challenged them through the courts in early 2000. The company is the second largest cable network in the US with 12.8m customers and owned only a single TV station - the TBS Superstation broadcast in Atlanta. Paul Cappuccio, executive vice president and general counsel for AOL Time Warner, said: "We are pleased the court has vacated the cable-broadcast cross-ownership rule. It has long been an anachronism."

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